Price Controls Will Lead to Scarcity, and Subsidies Won't Make Housing Cheaper

Vice President Harris's Economic Plan Is Pretty Awful

Vice President Kamala Harris has rolled out her economic plan, and it’s pretty bad. The Committee for a Responsible Federal Budget estimates that her plan would add $1.7 trillion to the budget deficit over ten years. The policy with the biggest price tag is the expansion of the Child Tax Credit, which, by itself, would cost $1.1 trillion. Harris plans to pay for the plan through tax increases, of course. That’s not a surprise.

Other aspects of the Harris economic agenda are more concerning because of the changes in behavior that will almost certainly happen as a result of some of the policy. Nineteenth-century French economist Frédéric Bastiat called this “what is seen and what is not seen.” Bastiat wrote about this in the context of the broken window fallacy, but it applies to other aspects of economics.

Although plenty of commentary can be written about the problems with Harris’s economic plan, I want to focus on two key parts. First, the price controls on groceries. Second, the subsidies for affordable housing.

Obviously, inflation has been a huge issue over the past few years. We’ve been told that inflation is coming down, but we’ve got to remember that what’s coming down is the rate of inflation. Now, some goods and services have seen prices level off and decline. But we haven’t gone through a period of deflation, so everything that occurred before is still in there even if the overall rate of inflation is slower than it was. Overall, grocery prices have leveled off and even declined in some cases.

Harris contends that “corporate greed” is one of the reasons grocery prices jumped during the pandemic. This was a standard line when inflation was at its peak. I don’t think we should dismiss that there may have been some of this, but excessive spending beginning on Trump’s watch in 2020 to mitigate the effects of the pandemic and supply chain issues are likely more significant causes.

The answer, according to Harris is, price controls to stop gouging. We’ve been through this before. President Richard Nixon enacted price and wage controls in 1971 as part of a broader massive economic intervention. It’s known as the “Nixon shock,” and it effectively ended the Bretton Woods system that dominated the West in the post-war era.

Nixon’s price controls were a failure that ultimately didn’t stop inflation—it worsened after the price controls ended—and led to food and gasoline shortages. The Nixon shock contributed to a recession in 1973 and a period of stagflation that didn’t end until the early 1980s. Harris’s proposal simply fails to learn from the lessons of the past.

Let’s also remember that grocers have very thin profit margins, between 1 percent and 3 percent. The prices consumers pay are dictated by markets. The cost of labor has also increased, which has also passed on to consumers. Harris’s proposal will only lead to the scarcity of goods, empty shelves, and families going without basic foodstuffs.

On Harris’s proposals for housing. Look, no one denies that this is a huge concern. The cost of housing is ridiculous. (Speaking of the failures of price controls.) Absolutely, there are ways to address this. One of those is through legislation like the Yes In My Backyard (YIMBY) Act, S. 1688 and H.R. 3507, which would push Community Development Block Grant program recipients to expand the number of available housing units.

The wrong way to approach this issue is through tax incentives for affordable housing and a $25,000 homebuyer tax credit. These proposals are bad policy. One basic thing about government subsidies is that the costs of whatever the government is subsidizing necessarily rises. The best example of this is the cost of college. It’s also true of housing.

There’s another risk as well, which is a potential replay of the housing market crisis. This, of course, would require a similar easy money policy from the Federal Reserve. Although interest rates are likely to come down some soon, I’m of the opinion that interest rates are more likely to go up over the long term than come down because of the need the government will have to make Treasury securities attractive to investors as the share of the debt held by the public grows.

The only real good news here is that Harris’s economic agenda is dead on arrival in Congress, particularly one that’s divided. Still, that doesn’t mean that Congress shouldn’t address the money crunch that families are experiencing. They should. It’ll just have to be done the old-fashioned way—bipartisan compromise.